Going self employed after redundancy - would a Van or Stock help?

HarpoonJoe

I'm being made redundant at the end of May with a gross payout of approx 70k and I'm wondering what options I have.

I'm most probably going to become self employed, primary business will be teaching martial arts classes but I have been offered casual freelance work in close protection, and am also keeping my options open.

It seems to me that any additional earnings for the 2015-16 year will be at 40%. This is going to be a killer as I'm not planning on earning much over the coming year and paying 40% tax on not much is pretty much sod all. Of course I've got my lump sum to fall back on but I really want to avoid spending any of that as it would go a long way to pay off my mortgage. So I'm thinking that this would be a good time to invest any earnings into my business for future years. I'm not looking to be earning much money, looking at being time rich and cash poor for a while (the house needs a lot of work done on it), I'm guessing I'd be happy to earn £1k per month to live on.

Anyway, my friend came up with a suggestion that he was quite confident would work (though I'm sceptical). He suggested that I could spend all my taxable income on stock (martial arts and exercise equipment maybe) which would reduce my end of year profit to potentially zero for the coming year, then sell the stock the following year when I'm back down to my regular taxable level (does this make sense?)
Basically splitting my 2015-16 tax over two years and staying under the 40% rate.


On a different note...
I was discussing this with a friend and I was explaining that I thought that buying a small van would be a good idea. We've been talking about getting another set of wheels for some time. This would mean that I could use this for traveling to and from classes, carrying my bits and bobs around, and useful for transporting the dogs from time to time. We would keep the car for domestic and my wife's commuting. Anyway I've looked into this and it seems ferociously complicated so I'm hoping for some simple answers just to point me in the right direction....

Given these options which one would be most tax efficient?
a) buy a second hand van for around £5k
b) lease or hire a van at around £150 per month
c) buy a new van for around £15k with a loan or finance


A lot of questions I know and it's a lot to take in at this end. I guess it would be worth me getting professional advice of sorts. Should a speak to an accountant or small business adviser or what?

Thanks

anselld

Spending on a van and stock works from a tax point of view, but it is pointless unless you need a van and stock.

Set up as limited company instead of sole trader. Keep all your earnings in the company until the following year when you are low rate tax payer and then extract as dividends. Save on NICs too.

HarpoonJoe

The van would be useful to be honest. Me and the wife have three large dogs so a small van would be really useful.

The stock could turn into a money spinner but with a lot of work, I've got a wholesaler account with my supplier so I could set up an ebay shop and sell the stuff on. Time and effort I'd rather avoid mind.

I like the sound of setting up a limited company but I hear that running a limited company can be a lot of hassle though, would it be worth it? Would I be able to stow away my redundancy (everything above the first £30k) in it? What if I end up getting a part time job as well, would that cause problems?

Pennywise

Pointless buying stock as you have to add back the value at the end of the tax year. So if you buy £50k of stock, and have £45k left, you only have £5k of cost to offset against income.

Van more likely to work, but you can only claim the business proportion, so if you use it only 50% business mileage, you only claim 50% of its costs.

Don't let the tax tail wag the dog, i.e. don't do anything for tax reasons only. If you want to buy a van and stock for future profit or business use, then that's fine, but remember it still costs you 60% if a higher rate taxpayer. You don't get back the money you spend, it comes off your income not tax.

CLAPTON

why not simply run your new business as you want to and then put the entire profit into a pension : no tax

densol_2

Van you can invest in under annual investment allowance ( I did the same ) but anything like stock as said above has to be accounted for at the end of the year. Its only eligible plant that gets a 100% write down. Also when you sell the said plant its worth 0 in eyes of tax man so you have to add back a balancing payment for what you sell it for.

Ive invested a heap of my redundancy in 2 self employed business and thus made a big loss, but with annual investment in first year its obviously a loss. Profits will come for the coming years as ive done the hard bit.